Retirement is a time of life that most people look forward to. For some, though, the possibility of reaching retirement age while not feeling financially secure is a scary thought. Recent polls have found that more than half of Americans are behind on their retirement savings goals, and twenty percent are unsure of their retirement savings status. In addition, with life expectancy rates increasing and financial stress due to the coronavirus pandemic taking a toll on the economic environment, the potential of running out of money during retirement is a valid concern.
If you or a loved one is nearing retirement age, we suggest working with a financial professional to structure a plan to allow for sustainable cash flow during retirement. We also recommend avoiding these common retirement mistakes that could negatively impact your financial security:
Don’t Take Social Security Too Early
While it may be tempting to take your Social Security at age sixty-two, waiting until you’ve at least reached your full retirement age is advisable. Taking Social Security too early will reduce your monthly benefit for the rest of your life. The longer you live, the more you’ll depend on your Social Security, especially if your savings run out.
Do Plan for Long-Term Health Care Costs
Along with longer lifespans comes more chance that you or your loved one will experience chronic health problems and need long-term care, putting a significant strain on your financial resources. Long term health insurance can provide full coverage for a small annual fee. Time is everything, though, in terms of qualifying for coverage. Over 50% of applicants age 50-59 can get coverage; this number drops down to 24% at age 70.
Don’t Cash Out Too Early
While it may be tempting, don’t dip into your retirement fund to pay for things like down payments on a new house, a vacation, or a family member’s college tuition. Doing so will deplete your savings, and chances are high that you won’t be able to replenish it sufficiently after the fact. If you withdraw funds from an IRA, you’ll have to pay income taxes on that money, and taking a distribution before age fifty-nine and a half may come with penalties.
Do Consider Working Longer
Not many people want to work longer than they have to. But, working just an extra year longer than you anticipated will increase your Social Security benefits once you take them, and your retirement assets will have an additional year to grow. If working full-time past your expected retirement age isn’t an option or a desire, think about transitioning to fewer hours, a role within your company with less responsibility, or picking up a part-time job.
Don’t Spend Too Much Early Into Retirement
Maybe you’ve been looking forward to living lavishly after retirement and enjoying the rewards of many years of hard work while you’re still young and active enough to do so. However, you must consider the possibility that you could live for several more decades. Avoid spending too much of your savings very early into retirement so that you can reserve enough money to rely on in your later years.